September 11, 2018
The Asia Pacific family office (FO) community is evolving as successful entrepreneurs, many from China’s tech sector, launch family offices to preserve their wealth and secure their legacy.
As they chase larger deals and explore new markets, Asia Pacific FOs increasingly rely on their unique advantages and entrepreneurial culture to convince companies that they can add value beyond money. And while China’s buoyant tech sector is a priority for many, the overall risk profile of their portfolio appears stable.
Panelists at the Bloomberg Family Office Forum 2018 held in Hong Kong earlier this year discussed the latest developments impacting the sector. Here are the key takeaways:
The family office has a competitive advantage
As they fight for deals against financial investors with deep pockets and corporates that can deliver strategic support, Asia Pacific FOs increasingly work together to pursue targets. At the forum, Rachel Wong Troublaiewitch of The Opportunity
Network noted that by combining their resources, FOs can reduce their individual financial exposure, secure better terms and leverage core competencies across markets. “We have seen a lot of interest in our platform for cross-geographic opportunities as FOs seek local partners to invest in new markets.”
Flexibility is another differentiating factor for FOs in the Asia Pacific region. Often managed by first-generation entrepreneurs, they can commit to invest much faster than competitors. Nimble on entry, FOs can also afford to take a longer view on exit. Many companies perceive FOs as an attractive source of patient capital, said Troublaiewitch, as – unlike private equity funds – they are not obligated to return capital to their investors within a specified timeframe.
The focus on China’s enterprise technology
China’s technological boom has minted legions of wealthy entrepreneurs, some of whom have begun family offices. Ikaria Capital Founder Andrew Teoh believes the family offices started by
these tech businessmen will likely build a virtuous cycle around the industry’s next growth story: enterprise technology.
As consumer-driven “super-unicorns” collect gigabytes of information about their users, they require new solutions to manage, organize and monetize this data. Pointing out that most unicorns listed on NASDAQ are enterprise focused, Teoh expects the same dynamic to play out in China as efficiency becomes the country’s new growth driver.
Shifting allocation to alternative investments
Beyond China, Asia Pacific FOs are increasing allocations to alternative investments in a bid to diversify risk and gain exposure to assets uncorrelated to public markets. While these family offices tend to remain conservative, the sheer increase in their assets under management (AUM) means they commit ever more capital to illiquid assets.
But for Dan Kim, Managing Director – Asia at Pomona Capital, these larger commitments don’t necessarily mean Asia Pacific FOs are willing to take on more risk.
“When allocations are diversified within the alternative space, overall risk levels won’t change much if the portion of the total portfolio allocated to illiquid remains stable. Thus, a family office heavily invested in real estate may allocate a portion of its new AUM to venture capital or biotech, but the bulk will still go to listed shares and liquid bonds.”
ESG: Mind the generational gap
Many family offices in Europe and America increasingly recognize the potential of Environmental, Social and Governance (ESG) investment to select assets that can generate higher returns with a lower risk profile. Lconstraints has also encouraged institutional investors in the West to adopt ESG more quickly: have a fiduciary responsibility towards their Limited Partners. As these investors range from state-owned pension funds to high-net worth individuals, fund managers are particularly mindful of the reputational risk their investors face.
But many Asia Pacific FOs are managed by first generation entrepreneurs who are still focused on growing their business and preserving their wealth, meaning few are aware of ESG’s potential. As members of the next generation gradually assume leadership and invest for the long term, expectations are they will use ESG as a tool to drive value in the next phase of family office investment in Asia.
A look ahead
Going forward, tech, healthcare, fintech and real estate were identified as the top investment opportunities for APAC FOs. But while many expect APAC FOs to go direct, Kim believes a growing number of FOs are ready to invest as limited partners. Notwithstanding these short-term considerations, one thing is certain: APAC FOs appear ready to become important players in the global investment community.